Keep your money safe: Stick to systemically important banks
Be wary of co-operative banks which have historically been most vulnerable
Recent collapses of banks like silver valley
and signature in the United States, as well as European bank Credit Suisse’s
travail, have left customers worldwide feeling uneasy. In India, past incidents
involving banks such as Punjab & Maharashtra Cooperative (PMC), YES Bank,
Lakshmi Vilas Bank, Global Trust Bank, and other, have also added to concerns.
Choosing your bank with care has hence never
seemed more important. If your deposits are with a bank that gets into trouble,
the Reserve Bank of India (RBI) may eventually find a stronger bank to take
over the troubled entity. But you could lose access to your funds during the
period of moratorium (imposed to avoid a bank run). Exercising a few
precautions in bank selection can help avoid such unnecessary anxiety.
SIBs: At apex of safety ladder
A retail customer may find it difficult to
evaluate a bank’s health. They could just go with a bank that has been labelled
a systemically important bank (SIB) by the RBI.
“A simple thumb rule of opting for a ‘too big to fail’ bank would suffice. These are banks like SBI, ICICI and HDFC, which the RBI has categorised as crucial to our economy.
SCBs: Loss of money is unlikely
If you venture beyond the SBIs, stick to
scheduled commercial banks, where you are unlikely to lose money.”I would not
worry about losing my money in a PSU bank. I would also not worry if it is in a
top-tier private- sector name. The government and RBI will not let them fail,
“says Deepesh Raghaw, a securities and Exchange Board of India or Sebi
registered investment advisor and founder, PersonalFinancePlan. Arnav Pandya,
founder, Moneyeduschool holds a similar view.”RBI will not allow a bigger bank
, either public-sector pr private- sector, to fail because that would have an
adverse impact on the entire financial system, “he says.
SFBs: Take limited exposure
Small Finance Bank (SFBs) are a relatively new
category. No crisis has occurred in a bank belonging to this category yet. ”I
don’t think even these banks will be allowed to fail, “says Pandya.
A limited portion of one’s deposits may be
parked in them.”Doing so will enable you to earn slightly higher returns, “says
Pandya. Avoid parking more than 20 percent of your total deposits in them.
According to Adhil Shetty chief executive
officer(CEO), Bankbazaar, “When investing in an SFB, make sure your principal
and interest earned during the tenure together don’t exceed the deposit
guarantee limit.
Steer clear of co-operative banks
Bank customers concerned about safety should
avoid co-operative banks.” Historically these have been the most vulnerable
within the banking space,” says Pattabiraman.
Diversify to stay insulated
There are a few other markers that bank
customers, should pay head to, “If a bank customers should pay heed to “ If a
bank’s lending rate (for,say,home loan) is much lower than that of established
banks and the borrowing rate(say, for FD rates )is much higher, that is a sign
of an established aggressively looking for higher market share. That often
doesn’t end well, “ says Pattabiraman.
Avoid concentration risk. “If you have money
spread across two-three banks, you won’t face liquidity problems, “says Pandya.
It is also advisable to have higher exposure to
larger, established banks and lower exposure to the riskier ones.
Senior citizens should be especially wary. “The
bulk of their deposits should be in established banks and the post office,
which enjoys sovereign guarantee, ”says Pattabiraman.
Raghaw suggests that senior citizens should
utilise products like senior Citizens Savings Scheme (limit hiked to 30 lakh
per person) and Primary Minister Vaya Vandana Yojana (available able until
March 31) to the hit before venturing into SFBs for higher returns.
They may also invest in government securities (G-Secs) via the RBI Retail Direct Platform as these come with sovereign guarantee, offer bi-annual income, and have rates higher than what many bank FDs pay.
TIPS TO MAXIMISE DEPOSIT INSURANCE COVERAGE
Deposit insurance offered by Deposit insurance
Credit Guarantee Corporation (DICGC) is available up to 5 lakh per bank per
customer.
This limit applies to all types of accounts aggregated:
savings, account, fixed deposit, recurring deposit, etc
Money kept in various branches of the same bank
is also aggregated and insured up to 5 lakh
To enhance the protection from deposit
insurance, deposits may be spread across family members and across banks.
If there is one joint account where A is the
first name and B is the second name, that will be treated as separate from
another where B is the first name and A is the second.
If a person opens deposit accounts in his
capacity as a partner of a film, guardian of a minor, director of a company, or
trustee of a trust, those accounts will be considered to be held in different
capacities and will enjoy separate insurance covers.
For More Details: Pooja Manoj Gupta, visit www.giia26.com
Email: pmgiia26.com Mobile 9868944340
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